Good morning. We’ve been writing for a while about how a broadly sturdy US economy has been a key counterbalance to a US stock market that has been wobbly since the spring. Late last week we saw a good example. After Thursday’s near-catastrophic sell-off, led by AI stocks, Friday’s jobs report came in unexpectedly strong, both in terms of jobs added and a 4.1 per cent unemployment rate. Markets steadied. Here is our favourite way to look at employment trends, which strips out the most non-cyclical sectors: Given an improving job market, why was economic disappointment such a big issue in last week’s midterms? Well, consider the long-term trend in real wage growth: Real wages are growing, but barely, and not for long if the current trend persists. Combine this with price levels that are a third or so higher than before the pandemic and the restive electorate is easy to understand. Send us your thoughts: [email protected].
Monday interview: Mark Blyth Fiscal stress, youth protests and AI are connected, and the connections seem likely to tighten in the months and years ahead. For today’s interview, I talked about this with Mark Blyth, professor of international and public affairs at Brown University. The conversation has been lightly edited for length. Unhedged: I wanted to talk about social unrest and AI and where they meet in the middle. But let’s start with the UK Budget. The UK’s got the same problem as everyone else in developed markets, which is that you can’t tax people, you can’t cut spending and you can’t borrow. Game over, right? Mark: I’ve done this whole bunch of academic work on growth models. And the thing that we take as foundational is that without growth, there is nothing. What you really need to do is get growth up above anything else. And I hate to sound like Liz Truss, I don’t think that deregulating banking again when it’s already deregulated is the answer. But nonetheless, it’s really all about growth. Unhedged: In that respect, has the UK really shot itself in the foot with Brexit? Mark: Not just that. From a growth model perspective, the UK’s growth model was essentially finance and credit driven. When that model broke in 2008, what happened was good intentions gone bad, whereby a lot came in under the banner of macroprudential regulation. You make finance safe from the last crisis. So the City of London is a diminished version of itself, which is now hobbled by a lot of regulation. It just never came back. Then you add the austerity years on to that, which was a huge exercise in self-harm. Then you add Brexit on to that. That’s why you’ve got very, very diminished prospects. Unhedged: In France, we have this kind of amorphous rebellion. Maybe it feels a bit like the social contract is breaking down? Mark: Exactly. And different constituencies care about different parts of the social contract. Everyone has a gripe. One of the problems with teachers is that the teaching salary is low. Yes, you get a pension at the end of it, but the underlying salary is low and there’s very little punishment to you for not turning up to school. So this degrades the quality of the education and that was one of the things that the students were concerned about. And then you don’t prioritise secondary education. It’s a bit like the Conservative austerity years because no one notices the school that isn’t built or the training programme that never happens. And then you take these kids and say, “Hey kids, there’s going to be this great new thing called AI. We have no idea if you’re gonna have a job five years from now.” So you can understand why they are upset.
Source: Financial Times Markets · Summarized by HeadlinesBriefing